Matrix Monthly: February Rent Growth Scores Love-Love

While rent growth remained stagnant during February, Yardi Matrix's latest monthly report assures that strong fundamentals and the promise of a growing economy bode well for the industry.

MatrixMonthly_0217_YOYAs the first quarter of 2017 is on its way out, average U.S. rent growth stayed stagnant during the month of February, according to Yardi Matrix’s monthly report of 124 markets. Remaining at an average of $1,306, it seems that the long-anticipated deceleration of rent growth has begun to take its course. On a year-over-year basis, rents increased 2.8 percent nationwide, a 40 basis-point drop from January’s figures.

Analysts at Yardi Matrix expected a slight slowdown this year as rents even out to a sustainable level. While there is noted deceleration, February’s rents are the same as they were in July 2016, and the industry’s fundamentals remain just as strong.

Generally, it is safe to say that most of the larger U.S. metros are regressing to more reasonable growth levels, there are a select few that continue to grow exponentially. Sacramento, Calif., which has dominated the metro rankings for months, experienced 9.7 percent year-over-year growth, and the Inland Empire increased 6.5 percent. Joined by Los Angeles with 4.7 percent and San Diego with 4.6 percent growth, California is home to four of the top six metros in the country, the latest Matrix survey reports.

Most metros, and not even all of California, is experiencing a level of growth comparable to the top six. In fact, two major Californian cities ranked at the bottom of the list, with San Jose experiencing negative growth of -1.1 percent, and former top-earner San Francisco at 0.2 percent. The report attributes the low rankings of the two cities to flattening “after a long stretch of high growth due largely to affordability issues.” Houston rounded out the bottom three, remaining last with -2.1 percent growth. The metro may start to see light at the end of the tunnel, as the report cites stabilizing energy prices and a burgeoning job market as signs of its impending recovery.

In 20 of the top 30 metros, rent growth stayed moderate, between 2 and 5 percent year-over-year. Yardi Matrix analysts see no reason for unease in the face of the continued moderation, writing, “We continue to stress that the deceleration is not unexpected or a sign of long-term weakness in the sector.” Fundamentals, like household formation and occupancy rates, are expected to remain almost unchanged, depending on the uncertain performance of the economy.

The report predicts moderate growth at the least, even if the economy doesn’t measure up to the financial sector’s inflated expectations or the impact of year’s high-growth agenda is delayed. Ultimately, while seeing sluggish rent growth in comparison to the yields enjoyed recently can be alarming, the commercial real estate industry is still poised for prosperity as the year continues.

To read the full report, visit the Yardi Matrix website.